This article is part of a series on what causes a firm’s value to increase.
This last article of 2014 will cover one of my favorite topics because in my experience it can be so misunderstood. How fast and agile is your organization? These are huge drivers of firm valuation.
Ask a representative sample of people in your organization how fast their organizations is and the conversation might go like this: “Well, I work ten hours a day but still bring some work home with me. I am doing my job plus some others due to retirements or layoffs that were not refilled. We get an average number of customer complaints compared with our competitors I think, and our financials are on plan so we must be doing an OK job. But every time we do our strategic planning retreat in January, we get hit with brand new projects to somehow fit into our daily work.”
Sound familiar? If the conversation is not familiar, you are doing a great job of managing speed and agility. If this does sound familiar, since all competitors are in the same boat, everything is OK – right? The answer is no – everything is probably not OK.
Nine times out of ten the conversation above describes an organization that is very slow and not agile, confusing effort with results and usually having lots of frustrating re-work. And this is an organization, maybe even an entire industry, leaving the door wide open for new entrants to upset the apple cart.
Let’s define our terms:
Speed – the average time it takes to complete a strategic initiative or project (hereafter just initiative)
Agility – the ability to easily re-configure components of an initiative to help make it faster
Here is a quick quiz I used to give to my clients when I was in consulting:
First question: In the normal or typical year, how many strategic initiatives do you have “in play?” In play means they are or are supposedly being worked on and are not formally terminated. A terminated initiative seemed good at one time but now has been formally disbanded.
Second question: In that same normal year, how many initiatives are determined fully complete compared to the original plan for that initiative? There has been no delay or slippage of time, even if agreed to by the customer. If there was a slippage of time, for any reason, the initiative is not counted as complete by this formula.
Now, take the first question’s answer and divide it by the second question’s answer. Let’s say you said 25 initiatives in play during the normal year and truthfully five actually completed with no delay or slippage associated with them.
What does the resulting number 25 / 5 mean? Are you ready? It means it takes on average five years to complete one initiative! How can this possibly be? The answer is this is a formula for the dynamic cycle time for the completion of an average initiative out of a portfolio of in-play initiatives. This demonstrates that year after year more initiatives have come into the portfolio than go out as completed. Chances are next year after the strategic planning retreat you will likely make this worse with more new initiatives.
If this all sounds familiar, you are in trouble. Your organization is in initiative overload. I predict there is a lot of frustrating re-work in the initiatives. I can also predict your people are not agile. They cannot figure out how to easily re-configure the portfolio of in-play initiatives to break through the bottlenecks.
You might think this surely sounds like a theory. It is not a theory, it is reality for many firms. Our achievement-oriented society makes sure there is never a shortage of ideas and many firms lack the ability to say “no” to putting some ideas in backlog. For example, my team did a study for one of the leading U.S. lighting companies. We found on average it took seven years for one new lighting strategic initiative to be completed as per plan. We benchmarked against General Electric, Philips and three very fast, agile smaller players and found the best-in-class cycle time to complete one key lighting initiative was fourteen months! To be competitive this firm needed to take almost six years of cycle time and re-work out of its processes.
At a high level, the solution to being slow and non-agile is to work the formula above and radically lower the numerator of the initiatives in-play to the critical few. This requires extreme prioritization. Next find and remove the process barriers to radically increase the number completed in a year as per plan. Now let’s say you say have six initiatives in-play in the typical year and on average you complete five initiatives as per plan that year. 6 / 5 = 1.2 years or about 14 months.
Working this simple formula is hard work. But it will contribute greatly to your firm becoming fast and agile, two of the drivers of firm valuation.
Bill Bigler is Director of MBA Programs and associate professor of strategy at LSU Shreveport. He spent twenty-five years in the strategy consulting industry before returning to academia full time at LSUS. He is involved with several global professional strategy organizations and can be reached at email@example.com and www.strategybest.com